From Discount Retailers to Grocery Powerhouses
Dollar stores have seen a dramatic transformation in recent years, going from simple discount retailers to formidable participants in the grocery sector. Food price increases and changing customer habits have contributed to the rising popularity of dollar stores as quick and economical grocery shopping destinations.
As this trend of dollar stores venturing into the grocery space continues, what will this mean for the future of shopping?
Food Inflation Causing Significant Consumer Shifts
Despite a recent decline in the consumer price index, the U.S. Department of Labor reported that food prices continued to rise, adding to the ongoing challenge of high grocery expenses. In the last year, there has been a significant increase in food prices, with an overall rise of over 10%. According to December 2022 data from the Labor Department, egg prices experienced a staggering surge of 60%, butter prices rose by more than 31%, and lettuce prices jumped by 25%.
Consequently, consumers are actively seeking out every possible method to save money. For many individuals, this entails shopping at a nearby dollar store.
Dollar Stores – The New Grocery Shopping Destination
In the past, customers would visit Dollar Tree primarily for inexpensive holiday party supplies and decorations. Now, according to ChaseDesign’s 2023 Dollar Store Channel Survey, grocery has emerged as the top category shopped in dollar stores nationwide. This shift is a direct response to record-high inflation, with dollar stores experiencing an impressive 89.7% increase in food purchases between 2008 and 2020, as the American Public Health Association reported.
According to a report from CNBC, over 20% of shoppers choose to buy groceries from stores like Dollar Tree and Dollar General in 2022.
The CNBC report also highlighted a study published in the American Journal of Public Health, which reveals that dollar stores experienced the most rapid growth among all food retailers in the nation. For example, Dollar General has set its sights on funding approximately 3,170 national real estate projects in fiscal year 2023. This ambitious plan includes the opening of 1,050 new stores and the renovation of 2,000 existing locations.
In its Q4 2022 and fiscal year earnings call, Dollar Tree affirmed its readiness to ramp up investments in the grocery segment. As part of its efforts to enhance its merchandising strategy, the company plans to allocate more space in its stores’ frozen and refrigerated sections to meet the growing demand from consumers.
Additionally, Dollar Tree recently disclosed the establishment of a test kitchen and outlined its intentions to introduce numerous private-label products. These initiatives are part of a significant expansion into the grocery sector, blurring the lines between different retail channels and encroaching upon the territory traditionally occupied by convenience stores.
Recent Price Hikes
Dollar Tree announced that its transition from $1 to $1.25 for its product range in 2022 has been highly successful. This move has now opened up opportunities for the company to implement additional price increases.
“The hard part has been done. That leap to $1.25 was painful, but that is done now, and it’s time for us to capitalize on it.” — Dollar Tree CEO Rick Dreiling
Dollar Tree is now undertaking a significant effort to broaden its range of pricing, introducing products up to $5. This strategic move is driven by the company’s recognition of great potential in higher price ranges, particularly within the food and beverage category.
